2 The man who made fridges coolHaier founded 1984When Zhang Ruimin took control of loss-making refrigerator enterprise QGRFIncorporated as group company 1991 when market leader in ChinaSales increased 73% paSales of $9.7 billion in 2003Has 30% of US market in small fridges50% market for wine coolers10% Europe’s air-conditioner market4th largest white goods manufacturer after Whirlpool/Electrolux/Bosch-Siemens

9 Basis of strategy Strategies based on Building global brandFollowing competitionExchanging threatFollowing customersShaping the competition

10 Does the light go out when the fridge door shuts?Plans or processes?Chinese firms have an unmanageably complex structureMeyer & Lu (2002) “Managing Indefinite Boundaries” argueChinese firms are a web of relationshipsSuch webs are hard to control because it is not clear where one firm ends and another beginsIs it therefore possible to have an organised strategy of development?Chen (2004) suggestsMost of Haier’s innovation is incremental and carefully guidedDriver is streamlining sales processes between user & supplierHaier generates technological innovation by seizing business opportunity and heavily segmenting its markets.

13 Dodgy business Negatives –Made several wrong choices in e-business strategy contentControversial to focus so much on joining Global Top 500 Club as its strategic intent andAchieving revenue volume as its strategic targetHaier might have expanded too far beyond the scope of its core competency and managerial controlFailed to differentiate core business from non-core businessIs Haier’s strategy misdirected?Is pursuit of prestige and sales volume causing company’s fit between strategy and capabilities to dislocate?

14 The Economist’s view (March 2004)In domestic & overseas marketsdiversification is driven by opportunism and desperation not good strategyProfits are not increasing despite sales growthQuotes Zhang RuiminAfter China joined the World Trade Organisation every multinational set up in China. Margins are low here. If we don't go outside, we cannot surviveOutside China, Haier has so far concentrated on niches--mini-fridges (to which it adds a handy fold-down flap for a laptop) and wine coolers. But to continue to grow globally it will have to compete with the likes of Whirlpool in their main markets. Yet Haier lacks such firm's R&D, their design skills--it employs just ten researchers in America--their distribution or their service networks.

15 The Economist’s view (March 2004)Nor is Haier being careful to keep costs low. Mr Zhang insists that Haier must produce outside China to be responsive to customers. Yet, at a stroke, that deprives Haier of its greatest advantage: China's vast pool of low-cost labour.Meanwhile, Haier's attempt to reward creativity--allowing every engineer the freedom to design and build his own products--has worked too well, leaving it with a bewildering 96 categories of goods in 15,100 specifications, including a fridge that pickles Korean kimchee cabbage and a washing machine that also cleans sweet potatoes. Most of these variants add more to production costs and complexity than they will ever add to sales.Worse, the group has moved beyond white goods into computers, mobile phones (where sales have badly disappointed), and even interior design and pharmaceuticals. All with unlimited potential, insists Mr Zhang. "This is a globalised era. No single industry can survive. There is a great future in these markets."

17 Is this “typical” Asian strategy?Commonalities:Institutional emphasisShared characteristics of emerging economieslack of established product/finance/labour marketslack of sufficient laws & regulationsinconsistent enforcement of contractsunrelated diversification may help to generate institutional supportExplains “doing it all oneself”

18 Is this “typical” Asian strategy?Agency theoryowners and managers have divergent interestsChinese investors don’t have skill to guide investmentinstitutionally have little power (who owns company?!)asymmetry of information

22 Add in social antecedent dimensionKeister (2004) studied firm borrowing in ChinaIn west as companies become more profitable they borrow lessIn China as companies become more profitable they borrow moreConsider retained earnings = state assetsSo undertake external debt in preferenceOther companies copied strategies of successfulAs firm grows – needs to access more capitalTherefore drive to internationalise may be more resource seeking than result of domestic competition